Bitcoin’s Usefulness for Payments is Rapidly Decreasing, But Maybe It’s Not a Bad Thing
As a means of payment in everyday online shopping, bitcoin has become a disaster, after it failed to scale with demand. As a digital gold or a new asset class, however, Bitcoin performs excellently. Maybe we can close the case, as to what Bitcoin really is.
If you tried to pay something worth less than $100 with bitcoin in the past few weeks, you might have found yourself cursing and swearing at the cryptocurrency. Fees are absurdly high, and even if you pay them, you are still waiting on the confirmation for an unknown amount time.
There have been some cases of people trying to pay a $20 order with bitcoin. They ended up with paying a 20 percent miner fee, waiting for confirmation, finally using PayPal to finish the payment, and having $100 in change stuck in the mempool. Bitcoin, as a means of payment for retail, sucks. There’s no way around this truth. It just doesn’t work.
No Relief by SegWit
For months, if not years, SegWit was promoted as the best-tested scalability solution. Now we have learnt that SegWit is not the scaling solution the digital currency needs.
At the time of writing, more than 135,000 transactions are sitting in the mempool, waiting for confirmation. These are 200MB, over 50MB more than the daily capacity of bitcoin.
Four months ago SegWit was activated, and it had nearly no effect. The adoption of SegWit stagnated at ten percent, while the average block size has climbed to only 1.05MB. It performs far worse than we estimated in the summer; and our estimation was one of the most pessimistic at the time. SegWit, it seems, has not become the promised 2MB soft fork, but a 1.05MB soft fork; clearly it is not big enough.
There seems to be no way out of this. The rate of SegWit transactions will not climb to 50 or 80 percent of all transactions quickly, the Lightning Network might be progressing, but there is a long way left to go until it has a significant effect on bitcoin’s capacity. The increase of the block size with a hard fork seems to be no longer an option after the failure of SegWit2x; after the community succeeded in fighting it by all means necessary, including calling everybody who wanted it to be an enemy of Bitcoin.
The Deconstruction of Bitcoin Adoption
Most likely it will become the new normal, that you have to pay roughly 300 satoshis’ each byte to reliably get a fast transaction confirmation, if not more. With simple transactions and current prices this sums up to more than ten dollars, with more complex transactions, consisting of several inputs, reaching closer to $20, $30 or even up to $100.
No wonder, the adoption of bitcoin in online shopping no longer progresses, but rapidly deteriorates. After Steam stopped accepting bitcoin with very good arguments, gpuShack followed on December 16, 2017. The store sells mining hardware, mostly GPUs, and bitcoin was one of the most popular payment options. Now gpuShack has disabled the option.
“Unfortunately, the high Bitcoin payment fees have broken the API functionality between Coinbase.com and Shopify.com,” the merchant writes, “Coinbase.com can no longer estimate when a transaction will confirm (if at all), causing an insurmountable customer support burden.”
Besides this, the high fees have become a burden gpuShack no longer wants to place on its customers.
Ultimately, Bitcoin payments are a pain. Every store which sells products below $100 or $200 will no longer be able to rely on bitcoin for payments. Ironically this includes hardware wallets like Ledger and Trezor.
Who wants Steam Keys if You Can Have an Aircraft Carrier?
Sure, you could say, bitcoin failed. It will not become the new standard in e-commerce. And so on.
However, you can take it not as the end of bitcoin, but as the beginning of a new episode in its evolution. While there are difficulties in its use for retail payments, bitcoin performs excellently as a digital gold or a new asset class.
The price reaches new highs over new highs and pulls the whole altcoin market up with it. Bitcoin Futures are traded on Cboe and CME; banks, asset managers, and private investors are aware of bitcoin and want to have it in their portfolios. It has become common knowledge that bitcoin is a good digital store of value.
Maybe you can no longer by Steam keys, burgers, VPN keys, mail accounts, web domains and so on with bitcoin. But it has become possible that in the future central banks will add the cryptocurrency to their basket of reserve currencies. Bitcoin can be used to buy oil vessels, aircrafts, trains, castles or islands. If you pay millions of dollars, bitcoin is super fast, super secure and super cheap. It could become the power money for corporations, states, the global unit of accounting, and the center of the world’s economy.
Using this beast to pay your Steam keys is like putting a nuclear power plant in your garden to have electricity for your light bulbs. Too much, too big, too oversized. The digital currency is the chance for everyone to have a share at the future’s power money. Does it really matter if you can use it in your everyday online shop?
Likely it doesn’t. But it is still the new reality of Bitcoin, and the community will need to get used to it.